MY DAY TRADING RULES

• I will ONLY put stocks BREAKING OUT OF DAILY CONSOLIDATIONS TO NEW HIGHS OR NEW LOWS ON HIGH RELATIVE VOLUME from my DAY TRADING SCAN into my watch list. THE BIG PICTURE IS MY BOSS!

• I will then wait for the stocks on my watch list to offer an ORB or TC SET-UP on the 5-minute chart before contemplating a trade

• I will only place a trade if based on the next, nearest level of RESISTANCE/SUPPORT on the 5/30-minute chart; there is potential for REWARD that's at least twice the RISK that will be taken.

• I will then WAIT FOR CANDLE OVER CANDLE CONFIRMATION before placing each trade!

• I will not risk losing more than 1R on a single trade

• I will not risk losing more than 2R’s on a single ticker

• I will not risk losing more than 3R’s in a single day

• I will wait patiently for either my stop or target to get hit or the market to close before exiting each and every trade. TRUST MY TRADE PLAN. TRUST MY EDGE!

• I will work from 9:00am EST to 11:30am EST every week day

• I will work from 1:00pm EST to 3:30pm EST every week day

My Five Step Checklist to A+ Day Trades!

1. Daily chart pattern I love 
   
   
   
2. Hot sector/industry and/or catalyst 
   
3. Solid intra-day fundamentals (float, ATR, RVol etc)
   
   
   
4. Tight spread and clean order flow 
   
   
5. Set-up on the 5-minute chart with risk/reward potential greater than 2:1 
   
   
   

January 2021...my most profitable month of day trading ever!

After deciding to shut it down in mid-November and taking December completely off day trading; I started the year off with almost exactly $3,000 in my day trading account at my broker Capital Markets Elite Group aka CMEG. 

My long term goal, as is the case with most traders who only have a small amount to start out with, is to get my account up to $30,000 and therefore over the pattern day trader (PDT) rule hurdle. To this end, my first major milestone was getting my account from $3,000 to $5,000 which would allow me to feel comfortable sizing up from $50 risk per trade to $100 risk per trade. My targeted time frame for this was around 3 months or by the end of March. 

Well I must say I am very pleased to announce that I very nearly accomplished this milestone in January alone! As you can see below; I grossed just over $1,800 before commissions and fees or roughly 60% growth on my small account in a single month!

I took a total of 52 trades with 52% being winners and 48% losers. This means January was also far and away my best month in terms of accuracy. During my last three profitable months (Sep, Oct, and Nov) last year; my accuracy languished in the mid to low 40's. Although I am happy with my accuracy in January; I know I can improve it even further and will look to target at least 60% accuracy for the month of February.

What I am really proud of though is my average win to average loss ratio which stands at 2.69 for the month! If you know anything about day trading or trading in general you will know that this is extremely impressive; especially when you consider that I risk losing $50 on every trade and my average loser is almost $12 less! Further the fact that my average winner is more than two times my planned risk per trade also indicates that although I kept a tight rein on losers; I also allowed my winners room to run for the most part. 

I don't plan to change anything much about my day trading process for the month of February except for trying to take high quality set-ups only and then sizing up to $100 per trade once I am able to take my account over $5,000.

One of my mid term goals is to start taking live trades in pre-market. However, before I will allow my self to start doing so I need to prove to my self that I can be consistently profitable trading the pre-market for at least a quarter or 3 months or so. While the results of my pre-market trading in January do look encouraging; I'll need to improve a lot more before I will risk my money in pre-market. 

With pre-market trades included; my number of trades increase from 52 to 85 which is good when you have edge as it means you will make more money by default. This shows true below as my total gain increases from $1,832.97 to $2,194.44. However, $361.47 from an extra 33 trades is hardly impressive and not yet worthy of me risking my hard earned money and mental capital on pre-market trades.

As you can see above, when pre-market trades are included with my live trades; my average loser jumps by almost $10 and my accuracy falls by nearly 4 percentage points. Part of this has been due to me taking a few boredom trades while I wait an extra hour for the markets to open due to day light savings time. However, for the most, trades were taken from set-ups that I thought would work at the time. So for the month of February, my goal will be to get my pre-market trading results at least on par with my live trading results from January.

All in all, after commissions and fees, I netted $1,700.09 for the month of January. So after my broker withdraws the platform and data fees ($125), I will start the month of February with $4,575.31 and continue pushing to get past $5,000 then hopefully onto $10,000. Wish me luck!

Why the idea behind a day trade is more important than your execution!

IDEA 

1. Daily chart pattern/set-up: my best two (2) daily set-ups over the past 3 months have been the "over extended gap down (20%+) into daily support" and the "multi-day/multi-week breakout long"

2. Fundamentals: this includes the float, short float%, average volume, ATR and relative volume of the stock. For my style of trading, stocks with 50-200 million share float have been my most profitable. However, I will take trades in stocks with floats as low as 20 million but not greater than 1 billion. As far as short float% goes, over 15% is excellent for longs and over 30% is extremely good especially if the move is not accompanied by a fresh catalyst. However, where shorting is concerned, stocks with short float% over 30 are prone to sudden and very sharp squeezes! In terms of average volume, over 15 million or so is my preferred level but I will take trades in stocks with average daily volume as low as 1 million although they do not typically trade as well. In terms of ATR, ideally I like to day trade stocks with ATR of $2.50 and above but I will go as low as $1.00 especially if they have a powerful catalyst. Finally, where RVol is concerned, 200% is my absolute cut off. Note however, that where as 200% will be acceptable for stocks with high average daily volumes (over 10-15 million); I need to see extremely high RVol (1,000%+) for stocks with average daily volumes nearer to 1 million.

3. Catalyst: this is a kind of tricky one as stocks can and often run huge in a day and trade cleanly without any sort of fresh news especially if/when they are in a hot sector/group and/or have low float and/or high short float%. However, all else equal, stocks with fresh news especially earnings and earnings guidance related often run much further and trade cleaner. In fact, the only circumstance under which I will consider taking short trades in this current bullish environment would be on really bad news such as accounting fraud or the like. FDA drug trial failures are a notable exception, however, as they often just lead to huge gap downs but do not have much intra-day range after the open. 

EXECUTION

1. Spread and order flow: Spreads under $0.05 accompanied by fast order flow are extremely important for getting good fills (particularly when using stops) and giving you the confidence to trust price action/intra-day patterns. Stocks with wide spreads and/or slow, drippy order flow can be very dangerous to your account especially if you use hard stops (like I do) or even if you don't as price can move against you in a flash on very, very little volume!

2. 5-minute chart set-up: Granted the spread is tight and the order flow is solid; I try to take entries off two (2) triggers only: Opening range breaks (ORB) and Trend Continuation (TC) near the 9-ema. Although trend continuation set-ups can occur at any time during the market open, set-ups prior to 10:00am tend to have the greatest edge. After 10:00am, trend continuation can and do work, but you need to me more discerning and wait for flatter, tighter patterns (triangles, wedges) versus pull back type set-ups. Another factor that I take into consideration (but often neglect to) is the realistic profit potential of the trade versus the risk that will be taken which ideally should be greater than 2:1 before I can initiate a trade.

3. Stops and profit taking: In order to ensure that I do not lose more than 1R ($50 at the moment for me) plus slippage (hence the reason for tight spreads and good order flow); I have hot buttons for 1R max loss stops for both longs and shorts which I hit as soon as I enter a new trade. Loss management and control is what keeps you alive in this game! Managing winners has always and will likely continue to be very tricky for me as well as most traders. That being said, typically, I try to take 50-75% of my position off once I'm up around 2R's and then I try to let the last 1/4-1/2 run as far as possible with a hard stop at break even but also using the 9-ema to trail a mental stop. Often times, I have not been disciplined at this and end up booking significantly smaller winners than I should have. This is one of the areas that I'll need to work on the most when I resume trading in 2021 as this is one of the few areas other than improving my loss and red day management that I can use to increase my day trading edge. 

IDEA vs EXECUTION

Now, why do I say that the idea behind the trade is more important than the execution? Well the reason for this is that from my years of experience day trading, you can be sloppy with your execution and still make money as long as your trades are in a very strong idea! This is so because your odds of taking a big loss or even getting stopped out even with a sloppy entry (granted you're trading in the direction of the trend as I do since I am a momentum trader) is lower than when taking trades in poor ideas. Generally speaking, momentum trades do not work as well in poor trade ideas. Even with razor sharp execution on poor ideas, it's extremely difficult to make money. For one, the odds of nasty slippage is much higher. Secondly, win rate will be lower (my personal win rate has hovered between 40-45%). Profit potential on trades that do go on to work is significantly lower than with good ideas (my win loss ratio has been consistently around 2:1). So in fact, you're very likely to lose money even with perfect execution if you're consistently taking trades in bad ideas!

When to trade the open versus when to avoid trading the open!

Firstly, I must define what I mean by the "open". In this post, as well as any other forum in which I frequently post, like Twitter, you will often see me mention the "open". By the open I am referring to the 15 minute period immediately after the official open of the US markets at 9:30 am EST or essentially the period 9:30am - 9:45am EST.

I am making this post as a reminder to myself as much as I am intending to share my experience/knowledge in this regard.

With that out of the way, on to the meat of this post.

How do I now determine whether or not I should trade the open?

1. Viable candidates (Stock selection/gap scanner): candidates that are viable to be traded at the open must come from the gap scanner and the gap scanner only. So it follows therefore, that if there are no candidates on scan or no candidates on scan that I like on a particular day then I should not be trading the open on that day! That's not to say I should not trade on that day at all but I should not be initiating any trades during the open on that day.

2. Pre-market spread and order flow: now, assuming that there are one or more candidates on the gap scan that I like then I can move onto the second step by around 9:15am EST or so to add them to my DAS market viewer. This then allows me to observe their spread and order flow in pre-market. If the spread is whippy and volatile in pre-market then its also very likely to be the same at the open and the same pretty much goes for order flow. This is why I often trade stocks I like in pre-market in my SIM account to get a feel for their spread and order flow. If these are not great then I should not be touching that stock during

the open! That's not to say I should not touch the stock at all on that day but definitely should be trying to trade it during the open.

3. Pre-market price action/technical set-up: third and finally, if the stock is over extended on the 30 minute chart (up or down 3 or more consecutive candles or up or down a huge candle), assuming you generally do not like taking counter trend trades at the open as is the case with myself, then these stocks should be avoided. Ideally you want to see a nice tight pre-market consolidation on the 30-minute chart heading into the open or at the very least the stock should have put in a tight consolidation on the 5-minute chart heading into the open. If the stock is extended on the 5-minute just before the open then it's a definitely an avoid unless you're looking for a counter trend play. 

So that's about it. Simple and easy rule but yet extremely hard to follow! lol Hope this helps your trading. Best of luck and thanks for reading! 

Review of my August day trading performance!

I lost my way in August and traded horribly. I traded on 19 of the 21 sessions in August and was red on 12 of those days hitting my max daily loss stop on 6 of those!

In total, I took around 53 trades and had an accuracy of just 28.3%! Although this in and of itself is not such a bad thing; my win/loss ratio was not sufficient to overcome this as my average losing trade was around -$35.99 while my average winner was only around $74.36 or just under 2:1.

Consequently, I ended up with a gross loss of -$252.14; -$382.98 after commissions and fees and a total loss of -$507.98 after accounting for platform fees. 

I failed to adapt to the drop off in volume and volatility. Several of my losing trades were solidly green before stopping me out due to not taking partials and being greedy; trying to hold out for big winners. When instead I should have been happy to take what ever little the market gave me; singles and doubles with the occasional home run in between. 

So my small account, which started at $2960 on June 24th stood at $1,360.81 at the end of August 31st. July and June were also red months for me to tune of -$300.60 and -$790.62 (both of which include commissions and platform fees of $125).

To be honest, I thought long and hard about calling it quits at the end of August but then I reflected firstly on a week in March in which I'd "successfully" completed a TradeNet 5-day demo challenge which they deemed me to have been disqualified due to taking 1 but not 3 or more trades on the first day of the challenge a day during which the indexes had been halted down at the open and their platform was not even working properly...LOL! 

Nevertheless, the gist of the challenge was to make at least $1000 in net profits over a 5 day period with a starting balance of $10,000 in buying power while not losing more than $100/day and not dropping below $9,700 at any point during the 5-day period. I made the $1,000 in profits and while the market conditions were different than they are now; this gave me the confidence that I could make money day trading. 

I was a bit dejected after they determined I'd been unsuccessful but picked myself up in May and started paper trading with TC2000. During this month I made a total of 69 trades with 43.5% accuracy and $91.14 average winner to -$42.63 average loser or around 2.14 win to loss ratio. Overall I made a hypothetical gross profit of $1,071.82 with $15,000 in simulated buying power and around $150 max daily loss. I could remember not even trading that great and making a lot of mistakes but still ending up profitable at the end of the month. So this gave me even more confidence that I could day trade profitably and so I decided to go back to live trading with a $3,000 account at the start of June.

Somewhere along the way, I shifted away from my process which I had used to "successfully' complete the challenge and then to make over $1,000 in paper profits in May. Consequently, I lost money as alluded above. 

This week, however, after reflecting on the above, I decided to go back to my "old style" and for the first time since going back to live trading this year, I've been green for 5 consecutive trades! I know it's still too early to "celebrate" but at least its a start and move in the right direction. My aim is to continue plugging away and claw my account back over the $3,000 mark slowly but surely and then hopefully fulfill my dream of paying myself from day trading profits for the first in my life before the end of 2020! 

 BIG PICTURE:

$SPY hit and managed to exceed the all-time high from February yesterday before getting "rejected" and selling off hard following comments on the US economy by the FED. So there's the strong possibility that we could see some continued pullback today. Notwithstanding, I still continue to favor long ideas.

MY BEST IDEA:

Pretty ordinary pre-market again today as has been the trend in recent days. Nonetheless, I do like $BJ quite a bit as it's gapping above a wide range red day from yesterday; to new all-time highs after announcing Q2 earnings and revenue beat on the back of record revenue with digital sales soaring over 300%. Furthermore, with a float of just 135.05M, short float of 9.27% and its recent price history after announcing earnings this stock does have the potential to be a big mover to the upside today. Nonetheless, I will only touch it if it offers me an A+ intra-day set-up on it's 5-minute chart!